India: From outsourcing to ‘outcome sourcing’ hub

India has been synonymous with outsourcing with all the major IT giants in the West looking towards the country as a source where labour come at a lower cost. However, with the recent developments in economy and changing outlook of the Indian IT industry, there has been a significant shift of the country’s portrayal as merely an outsourcing hub to ‘outcome sourcing’ hub. An interesting article in Financial Express talks about a shift in this direction.

The IP and BPO industry of India worth $70 billion follows the conventional and established Global Delivery Model (GDM) in which the efforts are paid either according to Time and material (T & M) model or at a fixed price. The key attraction of this model is the cheap rate at which labor is available in the country. However, due to the tremendous shift in the economic conditions of two key markets of IT industry, North America and Europe, a change from this conventional outsourcing model is slowly being induced in the IT industry of India. With North America and Europe perpetually seeking to adopt lower cost technology without compromising on results, innovative outcomes are now sought from the companies they have outsourced to.

Changing trends

It is interesting to note the changes that the economic pressure on Europe and North America has brought on to the Indian IT industry. The entire industry is gradually moving towards an innovation-driven one.

India is now viewed as an ‘outcome sourcing’ destination due to the talent, solutions and capability that the India IT and BPO industry has delivered while also evolving over time. This has stopped the markets from seeing the country as merely a low cost arbitrage.

The industry has realized the commoditization of the software services segment where the lower priced services find more demand. This model is unsuitable for those companies which are into developing their own solutions, consulting services and platforms. These companies focusing on innovation will change the image of the Indian industry as a source of cheap outsourcing. The focus has shifted to creating value rather than low cost efforts.

A change in the kind of deals bagged by the Indian IT companies is evident, with more and more Indian companies vying for outcome-based deals. These deals will have the capability of changing the business of the clients. The deals may not be fully outcome-based. About 30-40% of the deal might involve components which require an outcome-based approach.

Clients of the Indian IT firms look towards innovation even in the service sector itself with faster results. This has resulted in the services being subjected to an innovative treatment. These services include the traditional ones like application development and maintenance, infrastructure, testing, BPO and even the non-traditional ones such as products and platforms.

A shift is also seen in the type of services offered by the Indian IT firms. The low-cost service model is being discarded by many to focus on high end services which include package implementation, consulting, products and platforms. This focus-shift is heavily endorsed the Indian IT companies to build their expertise.

Trend-setters

Several major Indian IT companies have already set sail on an innovative path with the aim to provide high-end technology solutions. An effort-based value system is fast being discarded in favor of a result-based one in order to propagate the focus on innovation.

Infosys was recently engaged by a big European company in order to transfer the data operations of the company to a private cloud network which the IT firm successfully completed. In the process, more than 1000 servers were made redundant as also the reduction in real estate and energy costs.

In the scenario where services are being commoditized, Wipro aims at being a game-changer by creating value in the services it offers. It seeks to transform itself from an outsourcing firm into a technology company.

iGate is rampantly denouncing the old efforts-based model which according to the company is flawed and has curbed innovation. The company has launched an aggressive campaign in all major media, targeting major North American corporations, to shift the outsourcing model to a result based from the Time and Material model. The old model has no risk sharing factor in it with innovation seldom being the order of the day.

The trends are changing with the country’s IT industry rapidly moving to a result-oriented one providing innovative results and altering its image of being just an outsourcing region where efforts come at lower rates. The emerging ‘outcome sourcing’ hub is a definite shift in the industry that all the companies are tending to emulate. The country’s IT industry is soon to see a major transformation similar to the IT boom witnessed several years ago, with a small difference. This time, India will be at the helm with innovation being the weapon.

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